Chapter: 4

Company’s law

Meaning of Company (Joint Stock Company):

In simple term, company is a voluntary association of a number of persons called shareholders. The company collects its
capital by issuing its shares to the general public in the market. One, who buys shares, is called the shareholder and he is the real
owner of the company in true sense. It is established to carry on business towards the achievement of the objectives i.e. profit.

In legal term, company is an artificial person created by law, acts as a person towards achievement of business profit.
Therefore, it can be dissolved only by law. As a person, it can perform transactions in its own name, can buy and sell properties in its
own name, and can sue and can be sued by others in its own name. It has a common seal of its own. The seal is affixed in all the
important documents as the signature of the company.

Lord Lindley – “A company is a legal person just as much as individual but with no physical existence.”

Lord Lindley – “A joint stock company is an artificial person created by law having a separate legal entity with perpetual
succession and a common seal for the validity of its functions.”

Characteristics of Company:
1) Company is a corporate body with perpetual succession
2) Common seal
3) Legal entity
4) Number of shareholders
5) Limited liability
6) Share capital

1) Company is a corporate body with perpetual succession: A company has perpetual succession until it is dissolved by law.
Its life is quite independent of the life of its members. Hence, insolvency, lunacy or death of shareholders will have no effect to the
company’s life. The existing members may go out and new members may come in, but the company goes on running its transactions
without disturbance.

2) Common seal: For running transactions, every company will have a common seal of its own. The seal is affixed in all the
important documents as the signature of the company for giving validity to such document. For example: In every report and record
prepared by the company, contract papers etc. the company must affix its common seal.

3) Legal entity: A company is an artificial person having legal entity. It is created by law and can be dissolved only by law. It
has its own legal entity separate from the entity of its members. Like an individual, it can buy and hold movable and immovable
properties, can sell them in the market, can carry on lawful business and can enter into contracts in its own name. Similarly, it can sue
or be sued in its own name.

4) Number of shareholders: In a private company, the number of shareholders must be minimum one and maximum fifty. And
in the public company, the number of shareholders must be minimum seven and maximum unlimited.

5) Limited liability: The shareholders of the company have limited liability up to the extent of maximum value of shares
subscribed or agreed to be subscribed by them.

6) Share capital: In a public company, shares are issued to the general public and capital for company is raised. But in a private
company, shares are issued to promoters and capital is raised.

Importance of Company:
1) Social obligation
2) Employment opportunity
3) Personal income rises
4) Global economy
5) National income growth
6) Domestic product

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Corporate Personality (Legal Entity):
Simply, a company is an artificial person having corporate personality. It is created by law and can be dissolved only by law.
Since company is an artificial person created only by law, its establishment is not easy. For the incorporation of a company, a number
of legal formalities are required to be fulfilled.

The single most important consequence of incorporation is the separate corporate personality which the company acquires on
the registration of a company as it is certified with the ‘Certificate of Incorporation’. Thus, the company is born and comes into being
complete with its own birth certificate. Corporate personality refers to the fact that as far as the law is concerned a company
personality really exists apart and different from its owners. It means it has its own legal entity separate from the entity of its
members. It is the concept that enables limited liability for shareholders to occur as the debts belong to the legal entity of the company
and not to the shareholders in that company.

Like an individual, corporate personality includes the capacity of a corporation to have a name of its own, to have the right to
purchase, sell, lease, and mortgage its property in its own name, can carry on lawful business, can enter into contracts in its own name
and be liable for its own debts. Similarly, it can sue or be sued in its own name.
Incorporation is the process by which the company is recognized as a separate legal entity. The company will receive a
certificate of incorporation, which certifies that the company has been registered under companies Act; it can be seen as a birth
certificate of a company.

Companies had been given a legal personality from the Salomon & Salomon and Co Ltd case that had been regarded as the
big change in company law as it forms the fundamental concept. This means that once a company is incorporated, the companies
assets, belongs to the company and not to the members or shareholders. 

Main Consequences of Companies' Corporate Personality:

i) Companies can sue and be sued in their own name
ii) Companies enjoy perpetual succession
iii) Companies can hold property and members have no property interest in company property
1) Distinct legal identity from its members:
One of the most significant effects of corporate separate personality is that the company assumes a separate identity from that
of its members. Even if a company is owned outright by one shareholder, the company has a completely separate personality from that
individual. This is confirmed by the leading case of Salomon v A. Salomon & Co Ltd in which the House of Lords held that the
company’s acts were its own acts, not those of Mr Salomon personally. As a result, Mr Salomon was not personally liable for his
company’s debts. It is worth noting, however, that the Court did recognise that there would be situations in which they would be
prepared to move away from that principle and ‘lift the veil of incorporation’ and find individuals liable where they had acted
dishonestly, fraudulently or unreasonably.

2) Limited liability:
Due to the fact that the company is a separate legal individual, it follows that its members will not generally be liable for its
debts and obligations. This gives the shareholders a great level of security, since it means that they are able to profit from the
successes of the company whilst being safe in the knowledge that their personal liability is limited to the value of the shares they have
purchased. However it should be noted that those members who participate in the management of the company will not necessarily be
protected from personal liability. In addition, the concept of limited liability may not be attractive to potential creditors who may
require additional security for their loan.

3) Ownership of Property:
Where a company holds property in its own name, this belongs solely the company and the shareholders have no proprietary
rights (other than for the value of the shares they hold). This gives shareholders and employees more security than if a director chose
to leave his position and was able to enforce a sale and division of any company property or assets he owned. This position therefore
makes the shareholders’ investments more attractive and secure. However, this may be to the detriment of a trader who owned the
company property before incorporation but failed to subsequently assign the insurance policies to the company. This was illustrated in
Macaura v Northern Assurance Co wherein Mr Macaura had insured timber under his own name and this was then destroyed by a fire.
The insurance company refused to pay out on Mr Macaura’s claim, stating that he had no insurable interest in the timber as it was
owned by the company. In the same way, a parent company does not have an insurable interest in its subsidiary companies, even
where they are wholly owned by it.

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 4) Transferable shares and transparency:
The fact that a company is legally separate from its members facilitates the transfer of shares. The issue of shares is regarded
as a fundamental means of raising capital for the company (although smaller traders are often attracted by the concept of incorporation
merely as a means to protect themselves from potential unlimited liability). The exchange of shares on the open market also leads to
transparency since it acts as an incentive for management to conduct the business in a reasonable manner. This transparency enables
greater scrutiny by outsiders of the company’s affairs and reduces the opportunity for fraudulent behaviour, thereby improving the
marketability of the shares. It also means that investors are able to obtain the requisite information they need in order to evaluate the
company before entering into business transactions. From the company’s point of view, however, this transparency can often lead to
disclosure of information that they would have preferred to withhold and put them in a more vulnerable position with competitors.

5) Ability to sue and liability to be sued:

The main benefit to traders of incorporation is the concept of limited liability; however, this can act to the detriment of third
party creditors who enter into transactions with the company. Whilst the creditors will be able to sue the company itself, they may not
be able to recover their money if the company is insolvent. It should be noted also that a company is able to sue its debtors for non-
payment. So it is a legal individual that can both sue and be sued.

6) Perpetual succession:
After being legally created by incorporation, a company can only subsequently be terminated by the law. Unlike people,
companies are immortal and will continue to exist after the exit or death of its members by the process of perpetual succession.
Obviously a reduction in the number of members (particularly if they owned a substantial shareholding) may affect the company in
terms of morale, profit levels, functioning, etc, but the actual company itself will remain in existence. The only manner in which a
member is able to realise the value of his shares upon leaving the company is by selling them to another individual – there is no
entitlement to be bought out by the firm. Regardless of whether an individual’s shares are sold (or, if he died, then left to another in his
will), this will not affect the company itself. Shareholders of the company are merely agents of the company; they can come and go
without affecting the company’s existence. Therefore, it is easier and potentially less damaging to remove a fraudulent or disreputable
director from a company than a partnership (where that individual would be able to jeopardise the business by taking with him any
assets or capital that he owned). There is also greater security for employees since they will not be at risk of losing their jobs due to
the death of their employer, as the company will continue to exist. The benefits of incorporation to a sole trader or small partnership
are obvious. The company will have greater access to capital, thereby increasing the business’s chances of prosperity.

In conclusion, the effects of corporate separate personality are far-reaching. A company is regarded as a legal entity in its
own right and, as such, its members have limited liability for its debts and obligations. The company is able to own property in its own
name and issue shares to raise capital. It is able to sue debtors and similarly be sued by its creditors. Finally, a fundamental
characteristic of corporate separate personality is that of perpetual succession, which results in a continuation of the company’s
existence regardless of its members.

Incorporation of Company:
Since company is an artificial person created only by law, its establishment is not easy. For the incorporation of a company, a
number of legal formalities are required to be fulfilled. Hence, a company cannot be established by mere gathering of two or more
persons showing interest to incorporate it. In Nepal, any company can be incorporated only according to the provisions of the
prevailing company act.

Process of Incorporation of Company:

1) Company may be incorporated either singly or collectively
2) No. of promoters needed to incorporate
3) Application for incorporation of a company
4) Registration of company
5) Power to refuse to register a company
6) Information of refusal to register

1) Company may be incorporated either singly or collectively: A company can be incorporated by a single person or
association of persons towards the achievement of objectives mentioned in the memorandum. A private company can be established
by a single person but public company cannot be established by only one person.

2) No. of promoters needed to incorporate: In a private company, the number of shareholders must be minimum one and
maximum fifty. And in the public company, the number of shareholders must be minimum seven and maximum unlimited.

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 3) Application for incorporation of a company: The person who wants to incorporate a company has to submit an application
to the Company Registrar’s Office in the prescribed format along with the prescribed fee and following documents:
 Memorandum of Association (MOA) and Article of Association (AOA) of the proposed company.
 In case of private company, a copy of consensus agreement, if any.
 In case of public company, a copy of an agreement made between promoters prior to the incorporation of company, if any.
 If the promoter is a Nepalese citizen, a certified copy of the citizenship certificate.
 If the promoter is a foreign person, permission to make investment in Nepal, a document proving his/her citizenship.

4) Registration of company: After receiving the application, the Registrar, after making necessary inquires, should register it
within 15 days of the receipt of application and grant a ‘Certificate of Registration’ to the applicant in the format as prescribed. This
certificate is also known as ‘Certificate of Incorporation’. A private company can start its business immediately after receiving
‘Certificate of Incorporation’ but public company must obtain another certificate called ‘Certificate of Commencement’ from the
Registrar’s Office for running its transactions.

5) Power to refuse to register a company: The Company Registrar may refuse to register a company under any of the
following conditions:
 If the name is identical with the name in existence
 If the name or objective is contrary to the prevailing law or improper in view of public interest
 If the name is identical with the name of a cancelled company and period of five years not expired after such cancellation

6) Information of refusal to register: If the office of registrar refuses for registration of the company, shall give a notice
within 15 days of receipt of application to the applicant along with reasons of refusal. If not, applicant can file a complaint in the court
within 15 days.

Meaning of Promoter:
The promoter is a business term. It is used to describe the person or person who initially takes all necessary steps to form a
company with reference to a given object and set it going. 

According to L.H Haney – “promotion may be defined as the process of organization and planning the finance of a business
enterprise under the corporate form". 

Rights of Promoters:
1) Right to receive preliminary Expenses
The promoters are entitled to receive all the expenses incurred for in setting up and registering the company, from Board of
Directors. The articles will have provision for payment of preliminary expenses to the promoters. The company may pay the
expenses to the promoters even after its formation, but such payments should not be Ultra Vires the articles of the company. The
Articles may have provision regarding payment of fixed sum to the promoters.

2) Right to recover proportionate amount from the Co-promoters

The promoters are held jointly and severally liable for the secrete profits made by them in formation of a company.
Therefore if the entire amount of secret profits is paid to the company by a single promoter, he is entitled to recover the proportionate
amount from co-promoters. Likewise the entire liability arising out of mis-statement in the prospectus is borne by one of the
promoters; he is entitled to recover proportionately from the co-promoters.

3) Right to Remuneration
The promoter has the right to paid remuneration for the efforts. It may be fully or partly paid shares. If there is no
agreement, the promoter will not be entitled to receive remuneration.

4) Disclosure of remuneration paid to promoter

The remuneration or benefit paid to the promoter must be disclosed in the prospectus, if it is paid within two years
preceding the date of the prospectus.

Duties of promoter:
1) To discover an idea for establishing a company. 
2) To make detailed investigation about the demand for the product, availability of power labour raw material, etc. 

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 3) To find out suitable persons who are willing to act as first directors of the company and are ready to sign on the
memorandum of association. 
4) To select bank, legal advisor, auditors, underwriters for the company. 
5) To prepare essential documents of the company.
Board of Directors:
1) Numbers of Directors
a) Private Company shall be as provisioned in the Articles.
b) A public company, three Directors in minimum and eleven Directors at maximum.

2) Appointment of Directors
a) Until the First Annual General Meeting by the Company promoters.
b) Prior Annual General Meeting occurs some vacancy, the Board of Directors appoint a Director.
c) A body corporate in proportion to the value.

3) Qualifications Shares: A minimum number of shares hold to become a Director. “Any person, in order to be appointed as
Director of any company, shall have to hold such shares as may be prescribed in the Articles of that company” – Section 72. Not
necessary, if appointed by a body corporate.

4) Who can be the Director of a company?

a) A Director must be competent to contract
b) A Director must be a natural person: Major by age, of sound not is declared disqualified.
c) A Director must buy the requisite number of qualification shares: Director buy qualification shares not applicable,
appointed by a corporate body or by government.
d) A director must not be an insolvent: If declared insolvent ceases to become the Director.
e) Only a morally clean person may become a Director: Convicted and punished by a Court for theft, forgery or
embezzlement of cash, will cease to become a Director at least for a year completion of such punishment.

5) Disqualification of Director: Eligible to be appointed:

a) 21 years of age, in case of a public company;
b) Unsound and Declared
c) Convicted and sentenced for theft, fraud or forgery
d) Has personal interest in contract with the company
e) Not paid due to the company
f) Been punished with a penalty of Rs. 20,000 or two years imprisonment, pursuant to Section 128, until elapse of
one year and six month respectively.

6) No person shall be able to hold the post of Director in any of the following Circumstance
a) Not eligible
b) Resolution to remove
c) Resigned from his post
d) Convicted by a Court

7) Term or Tenure of Office of Director

a) Term of a Private Company as in the Articles
b) Appointed by promoters until the holding of the Annual General Meeting
c) Appointed in the midtime only for the remaining
d) Eligible for re-appointment as a Director.

8) Meeting of the Board of Directors

a) Private Company as in the Article
b) Of a Public Company held atleast 6 times in a year
c) Proxy of a Director not be valid
d) Quorum: 51% of the total number of Directors.
e) Minute: signed by at least 60% of the total number of Directors present, if Director denies the decision may put
the note of dissent in the minute
f) A decision not be invalid because of the lack of one’s signature in the minute

9) Board’s Report: Directors to prepare report and submit at the Annual General Meeting called the Board’s report. The public
company makes Books of Accounts ready at least 30 days prior to Meeting. Private company make ready within 30 days of the expiry
of the fiscal year. A board report contain the following:

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 a) Review of the transactions
b) Impact from national and international situation
c) Achievement of the company
d) Remark in audit report, Directors’ comments thereon
e) Percentage for distribution of profits
Meaning of Corporate Governance:
A) Corporate governance is about promoting corporate fairness, transparency and accountability. It is concerned with structures and
processes for decision making accountability, control and behavior at the top level of organizations.
It influences (i) the organization’s objectives (ii) risk monitoring (iii) performance optimization.

B) Corporate governance can be defined as the formal system of accountability and control for ethical and socially responsible
organizational decisions and use of resources.

Types of Corporate Governance Models:

1) The simple finance model
2) The stewardship model
3) The stakeholder model
4) The political model

1) The simple finance model:

'In the finance view, the central problem in corporate governance is to construct rules and incentives (that is, implicit or
explicit 'contracts') to effectively align the behaviour of managers (agents) with the desires of principals (owners)
The rules and incentives in the finance model refer to those established by the firm rather than to the legal/political/regulatory
system and culture of the host economy or the nature of the owners. The finance view represents a sub-section of the political model
of corporate governance. The political model interacts with the 'cultural', 'power' and 'cybernetic' models raised in the following
section.

2) The stewardship model:

In the stewardship model, 'managers are good stewards of the corporations and diligently work to attain high levels of
corporate profit and shareholders returns'. This argument supports the investment of business schools and their students in the
development of management skills and knowledge. It also reinforces the social and professional kudos of being a manager.

3) The stakeholder model:

In defining 'Stakeholder Theory': '"The firm" is a system of stake holders operating within the larger system of the host
society that provides the necessary legal and market infrastructure for the firm's activities. The purpose of the firm is to create wealth
or value for its stake holders by converting their stakes into goods and services'. 
The goal of directors and management should be maximizing total wealth creation by the firm. The key to achieving this is to
enhance the voice of and provide ownership-like incentives to those participants in the firm who contribute or control critical,
specialized inputs (firm specific human capital) and to align the interests of these critical stakeholders with the interests of outside,
passive shareholders.

4) The political model:

The political model recognises that the allocation of corporate power, privileges and profits between owners, managers and
other stakeholders is determined by how governments favour their various constituencies. The ability of corporate stakeholders to
influence allocations between themselves at the micro level is subject to the macro framework, which is interactively subjected to the
influence of the corporate sector.

Other ways of analyzing corporate governance

There are other models of corporate governance to consider based on culture, power and cybernetics. A synthesis of all
models may be required if we are to efficiently develop, construct, test and implement new approaches.

1) Culture: An example of a cultural perspective:

...transactions are conducted on the basis of mutual trust and confidence sustained by stable, preferential, particularistic, mutually
obligated, and legally non–enforceable relationships. They may be kept together either by value consensus or resource dependency—
that is, through 'culture' and 'community' - or through dominant units imposing dependence on others.

2) The power perspective of corporate governance:

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 From this perspective, it is the ability of individuals or groups to take action which is the over-riding concern. However, the
explicit use of power seems to be neglected topic. Even when shareholders, directors, management or any other stakeholder have the
knowledge and will to act, this is of no avail unless they also possess the power to act.
The power of shareholders to act is part of the political model of corporate governance. Hawley & Williams (1996:57-60) identify
various inhibitions on the power of shareholders to act arising from security laws, agenda setting by management at general meetings,
proxy procedures, voting arrangements and the corporate by-laws.
The power of directors to control management is dependent upon there being a sufficient number of directors who also have
the knowledge and will to act to form a board majority. Even if independent directors have the knowledge to act, they may not have
the will and power to act because they are loyal or obligated to management and/or hold their board position at the grace and favour of
management. Directors are unlikely to act against mangement unless they are supported by shareholders. However, many institutional
shareholders lack the will to act. This was found to be a major problem for US firms in a report into their competitiveness by Regan
(1993).

3) Cybernetic analysis:
Cybernetic analysis in social institutions is concerned with their information and control architecture. As control is dependent
upon power, a cybernetic investigation is dependent upon an analysis of power.
Cybernetics is based on the mathematics of information theory where the basic unit of analysis is described as a 'bit'. A bit can be
thought of as a letter in a language with eight bits creating what can be considered to be word, described as 'byte'. The ability of
computers to store, process or transmit information is measured in thousands or millions of bytes described respectively as kilobytes
and megabytes.

Meaning of OCED:
OECD (Organization for Economic Cooperation and Development) is an organization that acts as a meeting ground for 30
countries which believe strongly in the free market system, The OECD provides a forum for discussing issues and reaching
agreements, some of which are legally binding.

A multidisciplinary international body made up of 30 member countries that offer a structure/forum for governments to
consult and co-operate with each other in order to develop and refine economic and social policy. While the OECD does not set rules
and regulations to settle disputes like other international bodies, it encourages the negotiation of agreements and the promotion of
legal codes in certain sectors. Its work can lead to binding and non-binding agreements between the member countries to act in a
formal way. The OECD is best known for its publications and statistics.

The OECD defines itself as a forum of countries committed to democracy and the market economy, providing a setting to
compare policy experiences, seek answers to common problems, identify good practices, and co-ordinate domestic and international
policies.[22] Its mandate covers economic, environmental, and social issues. It acts by peer pressure to improve policy and implement
"soft law"—non-binding instruments that can occasionally lead to binding treaties. In this work, the OECD cooperates with
businesses, with trade unions and with other representatives of civil society. Collaboration at the OECD regarding taxation, for
example, has fostered the growth of a global web of bilateral tax treaties.

OECD's 30 member countries

Australia Denmark Hungary Korea Norway Sweden
Austria Finland Iceland Luxembourg Poland Switzerland
Belgium France Ireland Mexico Portugal Turkey
Canada Germany Italy Netherlands Russia United Kingdom
Czech Republic Greece Japan New Zealand Spain United States

The OECD promotes policies designed:

 To achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries,
while maintaining financial stability, and thus to contribute to the development of the world economy;
 To contribute to sound economic expansion in Member as well as nonmember countries in the process of economic
development; and
 To contribute to the expansion of world trade on a multilateral, nondiscriminatory basis in accordance with international
obligations.
 An organization that acts as a meeting ground for 30 countries which believe strongly in the free market system, The OECD
provides a forum for discussing issues and reaching agreements, some of which are legally binding.

A multidisciplinary international body made up of 30 member countries that offers a structure/forum for governments to
consult and co-operate with each other in order to develop and refine economic and social policy. While the OECD does not set rules
and regulations to settle disputes like other international bodies, it encourages the negotiation of agreements and the promotion of
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legal codes in certain sectors. Its work can lead to binding and non-binding agreements between the member countries to act in a
formal way. The OECD is best known for its publications and statistics.

Relevance of OCED to company:

1) Availability of resources due to inter-county free trade for example labor could migrate from one country to another country
so there will be available of labor.
2) Access of large market since member country could export their product to other member country.
3) Large no of satisfied customer due to large market.
4) Specialization in particular product since the company can sustain in same product due to large market.
5) Development of cross culture in business organization.
6) Corporate may have different market mix due to its market size ( price, place, promotion, product mix)

Risk of OECD:
1) There would be tough competition among multi-national company.
2) Loss of resource since there would be high rate of labor turnover.
3) Production cost would be high due to low level of supply of resource because there big- corporate would stock in large
amount so there is no equilibrium in demand and supply of the resources.
4) There would be more cross culture challenge.
5) There is more rules and regulation that the corporate has to follow including international law.
6) There would be high risk for local corporate house.
7) High rate of dependence. For example if there is large number of multi- national company in country than country depends
upon foreign company and so on with local company which is auxiliary supplier for such company.

Principles of OCED:
1) Ensuring the basis for an effective corporate governance Framework: The corporate governance framework should
promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities
among different supervisory, regulatory and enforcement authorities.

2) The rights of shareholders and key ownership functions: The corporate governance framework should protect and
facilitate the exercise of shareholders’ rights.

3) The equitable treatment of shareholders: The corporate governance framework should ensure the equitable treatment of all
shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for
violation of their rights.

4) The role of stakeholders in corporate governance: The corporate governance framework should recognize the rights of
stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and
stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

5) Disclosure and transparency: The corporate governance framework should ensure that timely and accurate disclosure is
made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of
the company.
6) The responsibilities of the board: The corporate governance framework should ensure the strategic guidance of the
company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders

Meaning of Corporate Social Responsibility (CSR):

Corporate initiative to assess and take responsibility for the company's effects on the environment and impact on social
welfare is called Corporate Social Responsibility. The term generally applies to company efforts that go beyond what may be required
by regulators or environmental protection groups.  
Corporate social responsibility may also be referred to as "corporate citizenship" and can involve incurring short-term costs
that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental change. 
Corporate social responsibility is a concept that organizations have an obligation to consider the interests of customers,
employees, shareholders, communities and ecological considerations in all aspects of their operations. The obligation is seen to extend
beyond their statutory obligation to comply with legislation.

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 1) Corporate Social Responsibility is concerned with treating the stakeholders of a company or institution ethically or in a
responsible manner. ‘Ethically or responsible' means treating key stakeholders in a manner deemed acceptable according to
international norms.
2) CSR includes economic and environmental responsibility. Stakeholders exist both within a firm and outside.
3) The wider aim of social responsibility is to create higher and higher standards of living, while preserving the profitability of
the corporation or the integrity of the institution, for peoples both within and outside these entities.
4) CSR is a process to achieve sustainable development in societies.
CSR’s Relevance to the company:
1) An easy way for company to build its brand, reputation and public profile
Being socially responsible creates goodwill and a positive image for brand. Trust and a good reputation are some of
company’s most valuable assets. In fact, without these, one wouldn’t even have a business. One can nurture these important assets by
being socially responsible.
It is however, crucial that one devise the right socially responsible program for your business. When used properly, it will
open up a myriad of new relationships and opportunities. Not only will one success grow, but so will your company’s culture. It will
become a culture which you, your staff and the wider community genuinely believe in.

2) CSR attracts and retains staff

Socially responsible companies report increased employee commitment, performance and job satisfaction.
it is in us all to want to do ‘good’ (and perhaps be recognized for it). Our lives become meaningful when we realize our work has
made a positive difference in some way. It makes all our striving worth it. In fact, a 2003 Stanford University study found MBA
graduates would sacrifice an average $US13700 cut in their salary to work for a socially responsible company.
By attracting, retaining and engaging staff, ‘doing well’ for others reduces your recruitment costs and improves work
productivity.
It’s just plain good all round!

3) Customers are attracted to socially responsible companies

Branding business as ‘socially responsible’ differentiates from competitors. The Body Shop and Westpac are companies who
have used this to their advantage. Developing innovative products that are environmentally or socially responsible adds value and
gives people a good reason to buy from socially responsible corporate.

4) CSR attracts investors

Investors and financiers are attracted to companies who are socially responsible. These decision-makers know this reflects
good management and a positive reputation. Don’t underestimate this influence; it can be just as important as company’s financial
performance. In fact, it may be the deciding factor in choosing to support company.

5) CSR encourages professional (and personal) growth

Staff can develop their leadership and project management skills through a well-designed corporate social responsibility
program. This may be as simple as team building exercises, encouraging your employees to form relationships with people they would
not normally meet (like disadvantaged groups).

6) CSR helps to cut your business costs

Environmental initiatives such as recycling and conserving energy increase in-house efficiency and cut costs. Introducing a
corporate social responsibility program gives a good reason to examine and improve on your spending

Benefits of Corporate Social Responsibility:

1) Achievement of long term objectives
2) Improved financial performance
3) Reduction in operating costs
4) Brand image and reputation
5) Increased sales and customers loyalty
6) Ability to attract and retain employees
7) Reduced regulatory oversight
8) Access to capital
9) Helps minimize ecological damage

Stakeholders of Corporate Social Responsibility:

1) Employees
2) Trade unions
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 3) Suppliers
4) Government
5) Competitors
6) Customers
7) Shareholders and investors
8) Local communities

Meaning of Criminal Liability of Company:

In criminal law, corporate liability determines the extent to which a corporation as a legal person can be liable for the acts
and omissions of the natural persons it employs. It is sometimes regarded as an aspect of criminal vicarious liability, as distinct from
the situation in which the wording of a statutory offence specifically attaches liability to the corporation as the principal or joint
principal with a human agent.

The imposition of criminal liability is only one means of regulating corporations. There are also civil law remedies such as
injunction and the award of damages which may include a penal element. Generally, criminal sanctions include imprisonment, fines
and community service orders. A company has no physical existence, so it can only act vicariously through the agency of the human
beings it employs. While it is relatively uncontroversial that human beings may commit crimes for which punishment is a just desert,
the extent to which the corporation should incur liability is less clear. Obviously, a company cannot be sent to jail, and if a fine is to be
paid, this diminishes both the money available to pay the wages and salaries of all the remaining employees, and the profits available
to pay all the existing shareholders. Thus, the effect of the only available punishment is deflected from the wrongdoer personally and
distributed among all the innocent parties who supply the labour and the capital that keep the corporation solvent.

Because, at a public policy level, the growth and prosperity of society depends on the business community, governments
recognise limits on the extent to which each permitted form of business entity can be held liable (including general and limited
partnerships which may also have separate legal personalities).

Negative impacts of Criminal Liability of Corporate:

1) If company found for criminal liability the company may lose its reputation
2) Loss of investors
3) Loss of market share
4) More intervention of government statuary body
5) Loss of professional ( professional may not be interested working in such business organization
6) More fine and penalty that affect the profit earning capacity of company as well as it impacts in share value of company
7) Loss of loyal customer ( if the company involves in the curtailing and unnatural shortage of goods)
8) It leads corporate towards the unethical, immoral business culture.

 If a state turns too often to the criminal law, it discourages self-regulation and may cause friction between any regulatory
agencies and businesses that they are to regulate
 Represents formal public disapproval and condemnation because of the failure to abide by the generally accepted social
norms, codified into the criminal law. Police powers to investigate can be more effective, but the availability of relevant expertise may
be limited. If successful, prosecution reinforces social values and shows the state's willingness to uphold those values in a trial likely
to attract more publicity when previously respected business leaders are called to account. The judgment may also cause a loss of
corporate reputation and, in turn, a loss of profitability.
 Justifies more severe penalties because it is necessary to overcome the higher burden of proof to establish criminal liability.
But the high burden means that it is more difficult to secure a judgment than in the civil courts, and many corporations are cash-rich
and so can pay apparently immense fines without difficulty. Further, if the corporation knows that the fine is going to be severe, it may
seek bankruptcy protection before sentencing.
 The theoretical value of punishment is that the offender feels shame, guilt or remorse, emotional responses to a conviction
that a fictitious person cannot feel.

Meaning of Insider Trading:

If any person deals in securities or causes any other person to deal in securities on the basis of any insider information or
notice that are unpublished or communicates any information or notice known to such a person in the course of the discharge of his or
her duties in manner likely to affect the price of securities such a person shall be deemed to have been committed an insider trading in
securities.

“insider trading or notice” means any such specific kind of information or notice not published by a body corporate issuing
any securities as may be capable or affecting the price of such securities if such information or notice is disclosed.
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 Any transactions already carried on shall not be deemed to be affected at all merely by the reason that an insider trading has
been committed.

Meaning of Money Laundering:

Money laundering is the process of concealing the source of money obtained by illegal means. In other words,
Legitimization (washing) of illegally obtained money to hide its true nature or source (typically the drug trade or terrorist activities) is
called money laundering. Money laundering is effected by passing it secretly through legitimate business channels by means of bank
deposits, investments or transfers from one place (or person) to another. The methods by which money may be laundered are varied
and can range in complexity. Many regulatory and governmental authorities quote estimates each year for the amount of money
laundered, either worldwide or within their national economy. 

Process of Money Laundering:

1) Placement Stage
2) Layering Stage
3) Integration Stage

1) Placement Stage: The initial movement of criminally derived currency or other proceeds of crime, to initially change its
form or location to places beyond the reach of law enforcement is called placement. Placement represents the initial entry of the dirty
cash or proceeds of crime into the financial system. Generally, this stage serves two purposes: a) it relieves the criminal of holding and
guarding large amounts of bulky of cash and b) it places the money into the legitimate financial system. It is during the placement
stage that money launderers are the most vulnerable to being caught. This is due to the fact that placing large amounts of money (cash)
into the legitimate financial system may rise suspicious of officials.

The placement of the proceeds of crime can be done in a number of ways. Some common methods include:
Loan repayment: Repayment of loans or credit cards with illegal proceeds
Gambling: Purchase of gambling chips or placing bets on sporting events
Currency Smuggling: The physical movement of illegal currency of monetary instruments over the border
Currency Exchanges: Purchasing foreign money with illegal funds through foreign currency exchanges
Blending Funds: Using legitimate cash focused business to co-mingle dirty funds with the day’s legitimate sales receipts

1) Layering Stage: After placement comes the layering stage. The layering stage is the most complex and often involves the
international movement of the funds. The primary purpose of this stage is to separate the illegal money from its source. This is done
by the sophisticated layering of financial transactions that obscure the audit trail and sever the link with the original crime.
During this stage, for example, the money launderers may begin by moving funds electronically from one country to another,
then divide them into investments placed in advanced financial options or overseas markets; constantly moving them to elude
detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage of delays in judicial or police
cooperation.

2) Integration Stage: The final stage of the money laundering process is termed the integration stage. It is at the integration
stage where the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash and
layered through a number of financial transactions, the criminal proceeds are now fully integrated into the financial system and can be
used for any purpose.
There are many different ways in which the laundered money can be integrated back with the criminal; however, the major
objective at this stage is to reunite the money with the criminal in a manner that does not draw attention and appears to result from a
legitimate source. For example, the purchase of property, art work, jewelry or high-end automobiles is common ways for the launderer
to enjoy their illegal profits without necessarily drawing attention to them.

Effects on Economic Development:

 It will distort the economic data and complicate government’s efforts to manage economic policy.
 It will have adverse consequences for interest and exchange rate volatility, particularly in dollarized economies.
 It will affect income distribution.
 It can deter the legal transaction by contamination.
 It can increase the potential for destabilizing and economically inefficient movements.
 Reduce the annual GDP.

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Anti Money Laundering:
A set of procedures, laws or regulations designed to stop the practice of generating income through illegal actions is called
Anti Money Laundering. In most cases money launderers hide their actions through a series of steps that make it look like money
coming from illegal or unethical sources was earned legitimately.

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Meaning of Cyber Crime:
In simple term, cybercrime refers to the criminal activity done using computers and the internet. This includes anything from
downloading illegal music files to stealing millions of dollars from online bank accounts. Cybercrime also includes non-monetary
offenses, such as creating and distributing viruses on other computers or posting confidential business information on the internet.

Cybercrimes are defined as: "Offences that are committed against individuals or groups of individuals with a criminal motive
to intentionally harm the reputation of the victim or cause physical or mental harm to the victim directly or indirectly, using modern
telecommunication networks such as Internet (Chat rooms, emails, notice boards and groups) and mobile phones (SMS/MMS)". Such
crimes may threaten a nation’s security and financial health. Issues surrounding this type of crime has become high-profile,
particularly those surrounding Hacking, Copyright Infringement, Child Pornography, Software piracy etc. There are also problems of
privacy when confidential information is lost or intercepted, lawfully or otherwise.

Internationally, both governmental and non-state actors engage in cybercrimes, including espionage, financial theft, and other
cross-border crimes. Activity crossing international borders and involving the interests of at least one nation state is sometimes
referred to as cyber warfare. The international legal system is attempting to hold actors accountable for their actions through the
International Criminal Court.

Meaning of Corporate Crime:

Corporate crime refers to crimes committed either by a business entity or corporation, or by individuals that may be identified
with a corporation or other business entity. In other words, corporate crime is the conduct of a corporation or employees acting on
behalf of a corporation, which is illegal and punishable by law. A corporate crime is the act of its personnel and need not be authorized
or ratified by its officials. It is sufficient if the officials were exercising customary powers on behalf of the corporation. Thus, to a
substantial degree, the crime of the corporation is interwoven with the acts of its officials. Such criminal acts are reflective of the
character of the persons who manage the corporation. Consequently, it would seem reasonable to utilize a corporate crime to impeach
a corporate official's credibility if the official is connected to the crime. Some negative behaviors by corporations may not actually be
criminal; laws vary between jurisdictions. For example, some jurisdictions allow insider trading.

Competitors: stealing customers from competitors by bribery or other ‘dirty tricks’

The state: evading taxes, making false claims for subsidies, over-pricing of contracts
Investors: siphoning off investors money for personal use, insider trading, share support operations
Employees: health and safety violations, diversion of pension funds for other company use
Customers: price fixing, faulty or counterfeit products, falsification of test results (e.g. on pharmaceutical product)
The environment: pollution, dumping of toxic waste products

Corporate Crime overlaps with:

 white-collar crime, because the majority of individuals who may act as or represent the interests of the corporation are
white-collar professionals;
 Organized crime, because criminals may set up corporations either for the purposes of crime or as vehicles
for laundering the proceeds of crime. The world’s gross criminal product has been estimated at 20 percent of world trade.
 State-corporate crime, because in many contexts, the opportunity to commit crime emerges from the relationship between
the corporation and the state.

Risk (impact) of cyber-crime:

i) Increased cost for establishment of internet security as well as investment on data backup.
ii) Loss of information that causes organization for operating loss since the competitor may obtain such as company future
planning or like that. It causes the company to lose market share, company new idea or innovation etc.
iii) Impact on its operation. For example: If the site of the air- company is hacked there will be no online air reservation. It not
only effects the operation of company but also cause heavy loss.
iv) Loss of data
v) Loss of goodwill. For example: The wrong information about could be sent by hacker through using company site. So there
would be loss of goodwill.
vi) Impact in investment. It could be possible that the investor may not interest to investment in such organization where there is
no security mechanism. The investor may more concern about profit and information security.
vii) Impact on profit. Since there will be huge cost to be incurred for internet security that will cause low EPS of the company.

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